payment instruction fraud

Jamieson Halfnight
Anne Juntunen

As many readers are aware, there have been a number of recent case decisions addressing insurance coverage issues arising out of social engineering fraud, sometimes known as payment instruction fraud. The recent round of judicial decisions includes a ruling by a Canadian court. In the following guest post, Jamieson Halfnight and Anne Juntunen of the Lerners law firm in Toronto review the recent Canadian decision and discuss it in the context of several recent rulings in the U.S. I would like to thank Jamie and Anne for their willingness to allow me to publish their guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Jamieson and Anne’s guest post is set out below.
Continue Reading Guest Post: First Canadian Cyber-Coverage Decision Joins Series of U.S. Judgments on Social Engineering Frauds

Just days after a Southern District of New York judge ruled in the Medidata Solutions decision that the Computer Fraud section of a commercial crime policy covered losses from social engineering fraud  (as I discussed in a post last week), a judge in the Eastern District of Michigan has held that a crime policy’s computer fraud section did not apply to social engineering fraud. Eastern District of Michigan Judge John Corbett O’Meara concluded, based on the specific policy language at issue, that the computer fraud coverage only applied when the fraud directly caused the loss, and that because there had been intervening steps between the computer fraud and the transfer of funds, the coverage did not apply. As discussed below, these recent decisions underscored the problems facing policyholders as they seek insurance coverage for social engineering fraud losses. Judge O’Meara’s August 1, 2017 opinion can be found here.
Continue Reading More about Crime Coverage and Social Engineering Fraud

One of the more vexing threats in the current business environment is the rise of “social engineering fraud” or “payment instruction fraud.” In these schemes scammers using official-seeming email communications induce company employees to transfer company funds to the imposters’ account. Among the many issues involved when these kinds of scams occur is the question of insurance coverage for the loss. In many instances, insurers take the position that because the schemes do not involve a “hacking” of the company’s systems and because the actual funds transfers are voluntary, the loss of funds is not covered under commercial crime policies.

However, in a July 21, 2017 decision (here), Southern District of New York Judge Andrew L. Carter, Jr., applying New York law, held that Mediadata Solutions Inc.’s commercial crime policy covered the company’s loss of $4.77 million transferred in response to an email instruction that falsely appeared to be from the company’s President. The court’s decision raises and addressed a number of interesting issues, as discussed below.
Continue Reading District Court Holds Crime Policy Covers Payment Instruction Fraud

FBIThere recently has been a “dramatic rise” in the incidence of business e-mail compromise (BEC) scams, according to an April 4, 2016 alert from the Federal Bureau of Investigation (here). In these schemes, which are also often referred to as “social engineering fraud” or “payment instruction fraud,” scammers using official seeming email communications induce company employees to transfer company funds to the imposters’ account. According to the FBI, during the period October 2013 through February 2016, law enforcement agencies have received reports of this type of fraud involving 17,642 victims. Complaints involving these kinds of fraudulent schemes have arisen in every U.S. state and 79 different countries and amount to over $2.3 billion losses. As discussed below, these types of schemes are not only a growing concern, but they are increasingly the source of insurance coverage disputes, as well.
Continue Reading The Growing Risk of Payment Instruction Fraud and Related Insurance Coverage Problems